Misrepresentations, Fallacies, and “Deregulation”

This was originally posted on Live Oaks on July 1, 2010. Comments have not been migrated.

It is summer in Texas and that means that it is time for the annual chorus of voices decrying “deregulation” of the electric industry in the state. As an example, Bay Area Houston (BAH) declares that “Electricity deregulation has failed.” While this certainly makes for attention grabbing headlines, it is a gross misrepresentation of the facts.

The most relevant fact being misrepresented is that the electricity industry is still heavily regulated in Texas. The web site of the Texas Public Utilities Commission states:

We are responsible for regulating certain services provided by telephone and electric utilities in Texas and for protecting utility customers.

The electric industry has been operating in a mixed economy–a mixture of freedom and government controls–since “deregulation” in 2003 (and long before that). Yet BAH blames “deregulation”, that is freedom, for higher rates. He doesn’t even consider the possibility that perhaps it is the government controls that have stifled innovation and led to higher rates.

Instead he provides an excellent example of the fallacy of post hoc. Since higher electric rates occurred after “deregulation” BAH concludes that it must be “deregulation” that is to blame. He conveniently ignores the controls imposed on utility companies that lead to higher costs–such as the fact that a company cannot generate, transmit, and sell electricity to consumers. A web site–PowertoChoose.com–owned by the Public Utility Commission states:

In the past, one company provided all parts of your electricity service (generation, transmission and distribution, and retail sales). With competition, these parts are separated into different companies.

Neither the PUC nor BAH tells us that the vertical integration that existed prior to “deregulation” was prohibited in the name of competition. In other words, the practices that allowed a company to operate more efficiently were banned by government fiat, and now the market is taking the blame.

The irony of the PUC’s web site is that while promoting consumer choice it actively limits producer choice. Consumers are encouraged to shop electric retailers–to act on their own judgment. But producers who deem it economically practical to generate, transmit, and sell electricity cannot act on their judgment. The decrees of politicians and bureaucrats are imposed on the utility companies and the utilities take the blame when the results are not to the liking of the public.

Higher electric rates are not the result of “deregulation”, but of continued government intervention. That BAH and his ilk don’t see this isn’t surprising. When they look at the government’s failed monopoly on education they don’t call for more freedom, but more taxpayer money and more government controls. When they looked at soaring health care costs they don’t blame the mountains of regulations imposed on insurance companies and doctors, they demand more government controls. When the financial industry collapses they don’t blame the 1,500+ regulatory agencies overseeing that industry, they declare that the industry isn’t regulated enough.

BAH, who labels himself a “consumer activist”, is unconcerned about producers. (And he isn’t concerned about consumers either, or he would be advocating freedom for both producers and consumers.) He is concerned solely with needs, the needs of consumers:

[Consumers] need reliable energy, with long term contracts, no cancellation fees, and a fair and reasonable price.

And when “deregulation” does not meet this need, government must intervene. Government must place more shackles on the producers of electricity so that consumers can have “reasonable” prices. However, BAH doesn’t have the honesty to state this openly. Instead, this is what he offers:

A small group of citizens approached the City of Houston with an idea. The City has negotiation power resulting in a 5 year contract at 9 cents a kWh. The citizens asked the City to require their chosen provider to offer the same rate to the homeowners and businesses of Houston….

We believe this idea has merit. The City will not resell electricity or provide billing services or customer support. They will only negotiate a rate and require the provider to voluntarily offer the same rate to its citizens. [emphasis added]